Buying up Plan B business

[VectraMan]

Not quite the same as the other thread of today. Before NLUK tells me to ask my accountant I don't have one, though I accept that for this I'm probably going to need some professional help. But if anyone could give me any pointers before I jump I'd appreciate it, even if it's "don't do it!", or if anyone could recommend someone to talk to that would be useful too.

For a few years I've been a minor shareholder in a dwindling software company for which I've helped maintain the software and provide some support in exchange for what's turned out to be a trickle of dividends, some of which I'm still owed. The other guy has reached giving up point, and we've been talking about me taking it over, which I would run as a Plan B in addition to working full time elsewhere with the hope of developing the software into something better and finding the key to riches. Maybe. He wants to keep a small shareholding in the future company, which I'm not against, but I would be the sole director and have complete control.

I don't want to take over the existing company as I'm honestly scared what I might find, and as I have a company already set up I'd prefer to use that rather than create a new one. I know there's a potential issue here with giving someone else a share of my contracting income, but to be honest I'm not that confident of my long term contracting possibilities and am currently working inside IR35 anyway, so it's a bit of a moot point for now.

My question is of the mechanics of this. I assume at some point we'll need lawyers to oversee the actual transfer of business, and some money will change hands. My Co. then has an intangible asset on its books, though I'm not clear on how it is valued or where "good will" comes into it. I read something that said the rules changed last year with respect to getting tax relief for a business purchase, but you can write if off over a number of years as you would with a tangible asset.

The other issue is that the dividends I'm owed will count as part of the purchase, and that bit makes my head hurt as that money is owed to me, but it's My Co. that is the buyer.

The thing is if any of this starts to cost a lot in accountancy and lawyers it probably isn't worth it.

Thanks for any advises / abuse.

[LondonManc]

article

[Maslins]

Hmmm, does seem like you've got quite a few separate potential issues to deal with there.

How involved have you been in that company in the past? Easier option would be if you were to simply buy some of the other person's shares in that company, and it continues to trade. Are you really concerned there might be significant skeletons in the closet? Possibly you could get the other person to sign some kind of indemnity...but then some might say those aren't worth the paper they're written on.

I personally don't think it's a great idea you bringing the "product" of that company into your existing contractor company, then selling/gifting some shares in "your" company to the other person. Seems you've already considered the downsides of this with your comments re IR35 etc...but still, doesn't sit well with me.

A third option might be to set up a whole new company, independent of both of the above...but I appreciate if its income is likely to be trivial, this may seem unwanted extra expense and hassle.

[missinggreenfields]

I don't want to take over the existing company as I'm honestly scared what I might find, and as I have a company already set up I'd prefer to use that rather than create a new one. I know there's a potential issue here with giving someone else a share of my contracting income, but to be honest I'm not that confident of my long term contracting possibilities and am currently working inside IR35 anyway, so it's a bit of a moot point for now.

Issue a new class of non-voting share that is entitled to dividends at a different rate and then give him one of those? That would remove the prospect of you giving up money that has nothing to do with him (plus as the only voting shareholder you can shaft him down the line and never declare a dividend on that class )

[northernladuk]

(plus as the only voting shareholder you can shaft him down the line and never declare a dividend on that class )

Lol. Remind me never to go in to business with you.

[LondonManc]

Lol. Remind me never to go in to business with you.

Not without checking the shareholdings at least!

[VectraMan]

How involved have you been in that company in the past? Easier option would be if you were to simply buy some of the other person's shares in that company, and it continues to trade. Are you really concerned there might be significant skeletons in the closet? Possibly you could get the other person to sign some kind of indemnity...but then some might say those aren't worth the paper they're written on.

Haven't been involved at all in running it. And yes I am concerned. I'm still owed dividends from a couple of years back so ask yourself how that happens.

I'm sure the indemnity would be worthless; no point suing someone without the means to pay. More importantly I'd have to pay for a forensic examination of the accounts as part of "due diligence".

[VectraMan]

Issue a new class of non-voting share that is entitled to dividends at a different rate and then give him one of those? That would remove the prospect of you giving up money that has nothing to do with him (plus as the only voting shareholder you can shaft him down the line and never declare a dividend on that class )

My first contract I was basically replacing a permie who was leaving because he found out the shares he'd been promised as part of joining a startup and sacrificing salary turned out to be worthless B shares. He was not happy.

[northernladuk]

My first contract I was basically replacing a permie who was leaving because he found out the shares he'd been promised as part of joining a startup and sacrificing salary turned out to be worthless B shares. He was not happy.

We've had, from memory, at least two posters that took the option and didn't one come back telling us they were worthless in the end?

[Maslins]

Haven't been involved at all in running it. And yes I am concerned. I'm still owed dividends from a couple of years back so ask yourself how that happens.

Have you seen the accounts? If not, ask to see them.

Possibly it's just poor admin. Eg perhaps they've forgotten they owe you those dividends and you haven't chased particularly hard.

Possibly it's poor cash flow. There can be situations where declaring a dividend is legal, despite there being no cash to pay it (eg significant non-cash assets, meaning retained profits despite no cash).

I'd suggest you should be able to do some basic digging easily enough yourself. Not necessarily any need to get expert forensic accountants in.